We recently compiled a list of the 15 Stocks to Invest in with Steady Dividends. In this article, we are going to take a look at where QUALCOMM Incorporated (NASDAQ:QCOM) stands against the other dividend stocks.
Dividend stocks, while popular among investors, have been underperforming for a while. Dan Lefkovitz, a strategist at Morningstar Indexes, attributed this lag to a straightforward reason: their limited exposure to the technology sector. Although technology wasn’t the top-performing sector in 2024, it came close and now represents a significant portion of the market.
However, this doesn’t suggest that dividend stocks are fundamentally weak or that they won’t rebound in the future. Alex Bryan, Morningstar’s director of product management for equity indexes, believes that changing market dynamics could benefit dividend investors. Here are some comments from the analyst:
“From a valuation standpoint, dividends look more attractive than they did a year ago, and that’s partially because of the relative underperformance that they’ve had. Bonds are certainly more competitive relative to dividends. But if you look at dividend-paying stocks relative to the rest of the equity markets, I think they’re becoming more attractive relative to other stocks.”
Other analysts also suggested that dividend-paying stocks might stage a comeback in 2025 due to growing investor demand for cash returns. The broader market’s dividend yield fell below 1.19% in 2024, marking a 20-year low, compared to its long-term average of 4.3%. With interest rates recovering on risk-free investments like Treasurys, companies are facing increased competition for yield. As a result, many are raising dividends or initiating them for the first time. Notably, some major tech giants began paying dividends in 2024, signaling to the market their shift toward value positioning within a high-growth sector.
Also read: 10 Best High-Yield Dividend Stocks To Invest In
In 2024, companies in the broader market that paid dividends returned around 35% of their net income and 45% of their free cash flow to shareholders, as reported by Bloomberg. The average dividend yield for these companies was approximately 2.3%, while the market capitalization-weighted yield stood at about 1.5%.
Wolfe Research’s Chief Investment Strategist, Chris Senyek, offers a unique perspective on investing in dividend stocks. While investors typically focus on companies with growing dividends and high yields, Senyek suggested exploring other opportunities. He highlighted companies initiating dividends for the first time and those that have recently reduced their payouts. Initiating a dividend indicates management’s confidence in maintaining steady earnings and cash flow, while also attracting a new group of investors.
Senyek also noted that shares of companies that cut dividends tend to underperform leading up to the cut, perform in line with the market shortly after, and begin to outperform about six months later. The key is to identify companies that may be at risk of cutting dividends and to reconsider those that reduced payouts a few months earlier. To forecast potential cuts, Senyek examines companies with high dividend yields, substantial debt, and elevated payout ratios. For potential new dividend payers, Senyek seeks out companies with robust free cash flow yields that are actively repurchasing shares and maintaining manageable debt levels. In view of this, we will take a look at stocks with steady dividends.
Our Methodology:
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks with over 10 consecutive years of dividend growth. From this list, we further refined our selection criteria by identifying stocks with a projected upside potential of over 10% based on analyst price targets, as of January 20. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of a bustling semiconductor production zone showcasing the company’s integrated circuits.
QUALCOMM Incorporated (NASDAQ:QCOM)
Upside Potential as of January 20: 20.3%
QUALCOMM Incorporated (NASDAQ:QCOM) is an American semiconductor company that offers a wide range of wireless technology services. In fiscal Q4 2024, the company delivered strong financial results, with revenues climbing to $10.24 billion, an 18% increase from the same quarter the previous year. Net income rose 33% year-over-year, reaching $3.5 billion. The company also posted an annual earnings per share growth exceeding 30% for fiscal 2024.
QUALCOMM Incorporated (NASDAQ:QCOM) has built a strong foothold in the smartphone chip industry and is well-poised to benefit from the fast-growing generative AI smartphone market. IDC projects this market to expand at an annual rate of 78% through 2028, with annual shipments expected to hit 912 million units by that time. Furthermore, Counterpoint Research places the company as the second-largest in the smartphone application processor market, commanding a 31% market share. Since the start of 2025, the stock has surged by over 9%.
Madison Investments highlighted QCOM in its Q3 2024 investor letter. Here is what the firm has to say:
“Alphabet Inc., Eli Lilly and Company, QUALCOMM Incorporated (NASDAQ:QCOM), Microsoft Corporation, and Apple Inc. were the largest detractors. Qualcomm has given back some of its first half gains after the CFO commented at a conference that its entrance into the AI PC business would take time to ramp. We continue to see Qualcomm as well positioned with growth from AI moving into the mobile phone, from new opportunities in the Internet of Things (IoT), and within the Auto industry but will also look to future growth as they enter the PC market.”
In addition to its innovations and efforts to expand its portfolio, QUALCOMM Incorporated (NASDAQ:QCOM) is also known for its strong dividend policy. The company has sufficient cash to fund its dividend payments. It ended the quarter with $8 billion available in cash and cash equivalents. The company generated an operating cash flow of $12.2 billion, up from $11.3 billion in the prior-year period. It also remained committed to returning value to shareholders, paying $2.2 billion to investors in dividends. It is one of the best stocks with steady dividends as the company has raised its payouts for 20 years straight. It currently pays a quarterly dividend of $0.85 per share and has a dividend yield of 2.03%, as of January 20.
According to Insider Monkey’s database of Q3 2024, 74 hedge funds owned stakes in QUALCOMM Incorporated (NASDAQ:QCOM), worth $3.23 billion in total.
Overall QCOM ranks 5th on our list of the best dividend stocks with high yields. While we acknowledge the potential for QCOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than QCOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
